Taxation: The hallmark of civilization

Joseph Kukral, Op/Ed Editor

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Imagine two individuals living on neighboring land. Both procure their own food, each has built his own home and each provides for his own defense. Near their neighboring land is a river that floods every time a heavy rain occurs. To resolve this issue, one of the individuals has to build a dike; however, because neither can agree on the exact design of the dike or the amount of resources each should contribute to its construction, the dike is not built. As a result, both properties are damaged when there is a heavy rain. Finally, one of the individuals relents and uses their own resources to build the dike, which simultaneously affords the other individual protection from heavy rains although he has contributed no resources of his own. This scenario embodies the free-rider dilemma in economics and provides the logical basis for taxation.

The scenario just described can be applied to society today in many ways. Without a government’s power to tax, how can any roads, bridges, infrastructure and other public goods be provided? Essentially, what makes public goods so difficult to create in the private sector is the fact that they are both non-rival and non-excludable in nature. Non-rival suggests every able individual can consume the good simultaneously. Non-excludable means it is very costly or nearly impossible to prevent someone else from using the good. No reasonable individual would delegate his own precious resources to a good that others could benefit from without making any payment or sacrifice for its use. Furthermore, it is unreasonable to believe that an individual who creates public goods can successfully exclude others from using them in a cost-effective way. Consider the issue of building the dike. The free-rider benefits from the dike regardless of whether any payment or sacrifice is made; the builder has no way to reasonably prevent him from using the benefit of the dike. Perhaps, the builder can charge the free-rider a fee for benefitting from its protection, but the free-rider is not obligated to pay because he never agreed to have the builder pursue the project in the first place.

Because both will benefit from its protection against torrential rains it only makes sense that both should allocate a portion of their own resources to help build it. How can both parties be stipulated to contribute to the building of the dike? The solution is simple: taxation. To prevent benefits accruing to free-riders, the proper method would be to tax them so they share the burden of the costs. The revenues raised will then be devoted for public goods. The solution of taxation is ideal because each free-rider has already been charged a preemptive cost for receiving the benefits.

Supreme Court Justice Oliver Wendell Holmes once stated, “Taxes are what we pay for civilized society.” Without government levying taxes for various public goods, essential elements of civilization would never have been implemented. One can surmise the calamitous results of a free-rider society without taxation nor public goods: There would be a lot fewer usable roads and highways; more violent communities in light of underprovided police; and finally, and perhaps most frightening of all, an insufficient national defense to fend off foreign invaders. Public goods offer immeasurable value for advanced civilization. And public goods cannot be offered without a central government empowered to raise revenues through sufficient taxation.

Anyone who has contrived the stupendous belief that taxes ought to be diminished because of their nominal costs fails to understand the philosophical underpinnings of why taxes are necessary in the first place. To reiterate: Free-riders do not reveal their preferences in how much they are willing to pay or sacrifice for a good that is potentially available to everyone with only one individual burdened by the cost. As a result, no public goods are created for the same reason the dike was not initially created —- free-riders deter the actions of private individuals to provide public goods.

Without taxation, there would be such a large deficit of public goods, society would become engulfed in chaos and resemble a time wherein dangerous bandits offered protection to defenseless villagers in exchange for their obeisance. For individuals deranged enough to forfeit the institution of taxation for this terrifying reality, I ask for their candid appraisal of whether they could even survive in a such a place without public goods.

In short, taxation is the hallmark of civilization. It is a precise tool to create goods of value that no private individual wants to take ownership of, for fear of someone else free-riding off of their efforts. Hence, the necessity to pay taxes for a national defense, and the growing necessity to pay taxes to ensure a healthy environment, also a public good. Only a near-sighted fool would sacrifice the miraculous device of taxation at the altar of their own greed.